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Bankruptcy Means Test

The income calculation that decides whether a person may file a Chapter 7 case or is steered into a Chapter 13 repayment plan - a comparison of household income against the state median, followed if necessary by a line-by-line deduction of allowed expenses.

Informational only - this is not legal advice. These definitions explain general legal vocabulary in plain English. They are not advice about your situation, reading them creates no attorney-client relationship, and the law differs from state to state and changes over time. For advice you can rely on, speak to a lawyer licensed in your state.

Looking for a lawyer rather than a definition? Skip to the state-by-state list of law firms for this.

What it means

The means test is the gatekeeper for consumer Chapter 7. A person whose debts are primarily consumer debts must show, on a sworn form filed with the petition, that their income is low enough that a liquidation case would not be an abuse of the bankruptcy system. The first step compares the household's average monthly income over the months before filing, annualized, with the median income for a household of the same size in the same state, a figure published by the Census Bureau and updated periodically by the United States Trustee. A person at or below the median passes and files Chapter 7 without further calculation.

A person above the median goes on to the second step: from that income the form deducts living expenses, most of them at standardized amounts the Internal Revenue Service publishes for its own collection work rather than at what the person actually spends, plus secured-debt payments, priority debts such as taxes and support, and certain actual expenses the statute allows. What is left is "disposable income", and if it is enough over the life of a hypothetical plan to pay creditors more than a threshold amount fixed by statute, a presumption of abuse arises. The presumption can be rebutted only by showing special circumstances - a serious medical condition, a call to active military duty - that leave no reasonable alternative.

The test does not apply where debts are primarily business debts, and it is waived for certain disabled veterans and reservists. A person who fails it is not refused bankruptcy: the case may be converted to Chapter 13, where the same disposable-income figure sets the minimum the plan must pay unsecured creditors over its term. That is why the means test matters even to a person who never intended to file Chapter 7 - it determines the plan payment in Chapter 13 as well.

Where this comes from

The means test is 11 U.S.C. § 707(b)(2), added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005; "current monthly income" is defined at § 101(10A), and the median-income comparison at § 707(b)(7). The IRS National and Local Standards are incorporated by § 707(b)(2)(A)(ii)(I). The same disposable-income calculation governs a Chapter 13 plan through § 1325(b)(3); Hamilton v. Lanning, 560 U.S. 505 (2010), and Ransom v. FIA Card Services, 562 U.S. 61 (2011), construe it. Official Forms 122A-1, 122A-2 and 122C-1 are the forms. The median figures and the dollar thresholds in § 707(b) are revised periodically and are not stated here.

When people hire a lawyer for this

The test is arithmetic, but the inputs are judgment calls - which months count, whether a bonus or a spouse's income is included, which expenses are allowed at the standard and which at actual - and a person who is near the line in either direction should have a bankruptcy lawyer run it before filing anything. Timing is the other lever: because the income window looks back from the filing date, a person whose income has just fallen may pass by waiting a few months, and one whose income is about to rise may need to file before it does.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

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Related terms

Other entries in the same area of law, each written from the same primary sources.

Automatic StayThe immediate, court-ordered halt to most collection activity that takes effect the moment a bankruptcy case is filed.
Bankruptcy DischargeThe court order that ends personal liability for the debts covered by a bankruptcy case - what it does, what it does not do to liens and co-signers, when it is entered, and how it can be denied or later revoked.
Bankruptcy ExemptionsThe property a person filing bankruptcy keeps - the home equity, vehicle, household goods, tools, retirement accounts and other assets the law places beyond the reach of the trustee and creditors - and the state-by-state choice of which exemption list applies.
Bankruptcy Trustee and the Meeting of CreditorsThe person appointed to administer a bankruptcy case and the short, sworn examination every debtor must attend - what the trustee is looking for, who actually turns up, and what happens after.
Chapter 13 BankruptcyA reorganization bankruptcy for individuals with regular income: debts are repaid in part through a court-approved plan.
Chapter 7 BankruptcyA liquidation bankruptcy: non-exempt property may be sold to pay creditors, and qualifying debts are discharged.
Collecting a JudgmentWinning a case and being paid are two different things - the second is a separate process the winner has to start.
Non-Dischargeable DebtsThe debts a bankruptcy discharge does not erase - child and spousal support, most taxes, most student loans, criminal fines, debts from fraud or drunk-driving injuries - and the difference between those that survive automatically and those a creditor must ask the court to preserve.
Preferences and Fraudulent Transfers (Clawback)The trustee's power to undo payments and transfers made before a bankruptcy was filed - a repayment to a relative, a property signed over to a family member, a creditor paid ahead of the others - and why "I paid my brother back first" is a problem rather than a virtue.
Reaffirmation AgreementA voluntary agreement in a Chapter 7 case to remain personally liable on a debt - usually a car loan - that the discharge would otherwise wipe out, in exchange for keeping the property; what it costs, the court's role, and the alternatives of redemption and simply continuing to pay.
Small Business Bankruptcy (Chapter 11 and Subchapter V)The reorganization chapter for a business that wants to keep operating while it restructures its debts, and the streamlined subchapter Congress added for small businesses - who qualifies, how a plan is confirmed, and what happens to the owner's personal guarantees.

« All glossary terms

Part of the LawyerLand plain-English legal glossary. Definitions are written from primary sources - statutes and court rules - and each entry states the authority it rests on, or says plainly when the doctrine is state law with no national rule.

If you cannot afford a lawyer, civil legal aid programs provide free help with many of these problems: civil legal aid programs by state.

Related free reference tools: statute of limitations for a personal-injury claim, by state, quoted from each state's official text - part of LawyerLand's legal reference tools.